The DAX index has posted losses in the Friday session. Currently, the index is at 12,730.25 points, down 0.50%. There was positive news on the manufacturing front, as German and Eurozone Manufacturing PMIs beat their estimates. However, data from the services sector failed to keep pace, as German and Eurozone Services PMIs both missed expectations.
Global stock markets continued to contend with low oil prices, which are weighing on investor confidence. Brent crude has plunged 10.8% in June, as crude trades around $45 a barrel. As crude prices continue to fall, there are rising concerns of disinflation. The US, Japan and much of Europe are struggling with low inflation, and lower levels could hamper growth. OPEC members continue to discuss lowering production, but the markets do not seem impressed. OPEC is already bound by a production agreement and compliance is over 100%, yet this has failed to prevent the collapse in oil prices. Another headache for major producers is the increase in production from the US, Libya and Nigeria.
A stronger global economy has spurred demand for exports from the euro-area, and this has boosted the manufacturing sectors in Germany and the eurozone. German Manufacturing PMI ticked lower to 59.3 in May, above the forecast of 59.1 points. Germany’s manufacturing sector continues to show strong growth, and the April reading of 59.4 was the highest since March 2011. The news was also positive in the eurozone, as Manufacturing PMI improved for a tenth straight month, climbing to 57.3 points. This beat the estimate of 56.9 points. On Thursday, the ECB’s economic bulletin projected solid growth in the euro-area in the second quarter, buoyed by low inflation rates and stronger domestic demand.
The German economy remains robust, with a strong labor market and stronger consumer and state spending. As well, the manufacturing and export sectors are booming due to increased global demand for German products. There were cries of despair in political and business circles in Europe when Donald Trump was elected, as Trump campaigned on a protectionist, ‘America first’ agenda. However, these concerns have largely died down, as the eurozone economy has improved and Trump has been in damage control mode, as he focuses on domestic scandals. Earlier this week, the well-respected German BDI Federation of Industry added its voice to the chorus of accolades for the German economy. The BDI said that Germany’s economic output would increase by 1.5% this year. At the same time, the BDI counseled caution, noting that the economy had been buoyed by a weaker euro, lower oil prices and the ECB’s accommodative monetary policy. All three are ‘external factors’, in the sense that Germany has limited influence on them, and a significant change in any one factor could weigh on economic growth.
